Nordea is the first major international bank planning to operate important host country activities in branches as the Second European banking directive envisions rather than as subsidiaries. Nordea is the result of mergers of roughly equal-size universal banks in four Nordic countries with the intention to reap economies of scale and scope by providing services in an integrated organization. Nordea has so far operated under a legal structure with subsidiaries in the host countries. When the new branch organization is implemented, EU directives specify that the home country is responsible for supervision, regulation as well as deposit insurance. Supervisors in all involved countries are challenged by this prospect and they are negotiating to obtain an acceptable division of responsibilities. We argue that the Nordea case offers an opportunity to implement the EU's vision and to develop institutional foundations for substantial market discipline in banking. In particular, distress resolution and insolvency procedures for banks must be made rule based and credible for host country authorities to accept home country control.

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Abstract
We analyze firms’ incentives to cluster in an industrial district to benefit from
reciprocal technology spillovers. A simple model of cumulative innovation is presented
where technology spillovers arise endogenously through labor mobility. It is
shown that firms’ incentives to cluster are the strongest when the following three
conditions are met: 1) technological progress is rapid; 2) competition in the product
market is relatively soft; 3) the probability of a single firm to develop an innovation
is neither very high nor very low. We show that some trade secret protection is always
beneficial for firms’ profits and stimulates clustering. Excessive protection may
impede technology spillovers and reduce firms’ incentives to cluster.
JEL Codes: J3, K2, L1, O32, O34.
Keywords: Cumulative innovation, industrial districts, intellectual property rights,
technology spillovers.

Investors choosing a portfolio strategy, in order to secure a pension at a future date for
example, are faced with many uncertainties. One major uncertainty is the amount by
which their pension fund will be supplemented by personal savings from a variety of sources
such as life insurance contracts, bequests, or property sales. Over long periods of time these
uncertainties are likely to be large and difficult to hedge, and hence may have a significant
effect on the dynamic portfolio strategy. Drawing on the results of previous literature on the
reaction of investors to non-unhedgeable background risk, and on the theory of stochastic
dynamic programming, this article derives optimal strategies for investors maximising the
expected utility of terminal wealth, where this wealth consists of the value of a pension
fund plus accumulated personal savings. Numerical results, assuming that the market
portfolio and the expectation of personal savings follow (possibly) correlated geometric
Brownian motions, are derived to illustrate the effects of the size and uncertainty of the
personal savings, as well as the effect of the resolution of the uncertainty in them over
time. The computation uses a new technique for implementing the stochastic dynamic
programming. This involves a binomial approximation, in two dimensions, which ensures
that the computations are feasible for relatively long-term problems.

This article compares a set of often used simple contracts or mechanisms
in terms of how well they allocate decision rights between two
agents over time. A basic assumption is that agents incur a fixed cost
each time they renegotiate. The contracts or mechanisms studied are:
individual ownership and authority, the first-come first-serve rule, the alternating rule and the sign-up rule. One trade-off that arises is the
following: when usage of the asset is flexible in the sense that it does
not matter in which period it occurs, agents may rely on obtaining the
asset through arriving first at some point, while when an agent needs to
time and plan the use of the asset, he or she may wish to hold stronger
rights or to use the sign-up rule as a simple form of contracting.
(JEL:D10, D23, L22); Keywords: Incomplete contracts, individual ownership,first-come first-serve rule, costly renegotiation.

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Abstract:
Proponents of specific performance as a remedy for breach of
contract have found support in the alleged use of the remedy in
Civil Law countries. However, we provide evidence that specific
performance is in fact a rare remedy in Denmark, Germany and
France, and under CISG, when performance requires actions to be
undertaken, and we relate this to costs of enforcement. We argue
that it is administratively costly to run a system of enforcement
that renders specific performance attractive to the aggrieved party,
and that the Civil Law countries have (like Common Law countries)
chosen not to incur these costs of enforcement. This is especially
clear in the case of Denmark, where specific performance of actions
has been abandoned as a legal remedy.
At the normative level, we argue that enforcement costs provides
an additional rationale, over and above the rationales of the theory
of efficient breach, for damages and against specific performance
as the general remedy.

The New Economy is closely associated with computing & communications technology, notably
the Internet. We discuss property rights to, and trade in, the difficult-to-define intangible assets
increasingly dominating the New Economy, and the possibility of under-investment in these
assets. For a realistic analysis we introduce a Schumpeterian market environment (the
experimentally organized economy). Weak property rights prevail when the rights to access,
use, and trade in intangible assets cannot be fully exercised. The trade-off between the benefits
of open access on the Internet, and the incentive effects of strengthened property rights, depend
both on the particular strategy a firm employs to secure property rights, and the protection
offered by law. Economic property rights can be strengthened if the originator can find
innovative ways to charge for the intangible assets. The extreme complexity of the New
Economy and the large number of possible innovative private contract arrangements make it
more important to facilitate the use and enforcement of private individualized contracts to
protect intellectual property than to rely only on standard mandatory patent and copyright law.
Enabling law is one proposed solution. Current patent legislation in the US has led to costly
litigation processes weakening the position of small firms and individuals in patent disputes.
The property rights of such firms and individuals could be strengthened with insurance or
arbitration procedures.
Key words: Competence bloc theory, Enabling law, Experimentally Organized Economy, New
Economy, Weak property rights, Tradability, Underinvestment.

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The standard of proof in criminal law a®ects retributive justice through
the number of wrong convictions and wrong acquittals. It also a®ects the
level of crime, since a higher standard of proof implies less deterrence and
less incapacitation. This article derives an expression for the optimal standard
from a trade-o® between these e®ects, and applies the expression to
the crime of sexual violation against women. For this crime, social preferences
for justice versus prevention of crime are elicited through a survey
and inserted into the expression for the optimal standard. The result indicates
that the concern for prevention of crime may have a signi¯cant e®ect
on the optimal standard of proof.

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If secession or expulsion ends in a "velvet divorce," as with Czechoslovakia, costs are
minimal and the split is relatively unimportant. High costs arise if a federation splits into mutually
hostile, comparably sized regions. Perhaps the majority of splits lead to dangerous hostility. A
well-designed constitution minimizes the likelihood of hostile splits by limiting the issues that are
dealt with at the federal level, by providing checks and balances, and by establishing due process
under the rule of law. Preventing the conditions under which a hostile split may arise is more costeffective
than trying to optimize the terms of a split or to find last-minute compromises to
forestall the split.

The post-Civil War reconciliation between the North and the South is a very rare event
in the history of civil wars. The South was thoroughly beaten. Top generals, particularly Robert E.
Lee, saw further fighting as "useless effusion of blood." There was no call by top Confederate
leaders for continuing the fight with the type of bushwacking that occurred in Missouri and
Kansas. Reconstruction is often thought of as harsh, but compared to the standards of history
Confederates were by and large treated well after the Civil War. Within a decade or so of the end
of the Civil War, conservative white elites had established political, economic and social
dominance in the South. They had lost their "slave property" and the "government of our own."
They could never get back slavery, and a government of their own was not worth fighting for.
There was little reason for the kind of persistent low-level guerilla warfare that often occurs after
civil wars, or the organization of a succession of rebellions.

Because the conflicts that led to the American Revolution mainly arose from
constitutional issues, the history of these conflicts offers lessons for the design of the new
European Union constitution. One lesson is the importance of avoiding needless conflicts
between federal and member-state governments. In particular, forcing decisions on where
sovereignty lies may cause great conflict. Another lesson is that a federal system depends on
good will among the federal and member-state governments, and because this good will is easily
dissipated, efforts should be made to nurture it. Federal exercise of power will often alienate
member states; thus, a sensible strategy is to grant the federal government only the minimal
powers that a strong consensus agrees it must have, and to change these powers only by strong
consensus. Removing "democratic deficits" may not be sufficient in many cases to give
legitimacy to exercise of federal power; minorities may require protection by constitutional
limits on federal powers.

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The paper argues that society should vary the sanction applied to a
criminal defendant with the weight of the evidence against him or her.
This is optimal when it is costly for society to apply sanctions, since it can
yield the same degree of deterrence while requiring fewer resources to be
spent on sanctioning. Furthermore, when the unfairness of convicting an
innocent defendant increases with the size of the sanction, this provides a
further rationale for graduating sanctions with the probability of guilt.
Some objections are briefly discussed, mainly that it is inherently unfair
to apply different sanctions on people, who have committed the same
offense, and that the legal system will lose legitimacy if it allows sanctions
to vary in the way suggested.

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The democratic deficit in the so-called bargaining democracy provides the
motivation for constitutional efforts to limit the ability of different groups to form
coalitions that are able to grant benefits to themselves through legislation that more
or less directly benefit identifiable groups. A constitutional hierachy of laws that
stand in conflict is proposed. In this hierarchy more "rule-oriented" legislation
dominate less "rule-oriented" legislation. The main purpose of the proposal is to
create a momentum of the political process towards more rule-oriented policy
actions and legislation, and to inspire the policy debate to focus on principles and
rules to an increasing extent. At the same time, the difficulty of defining a rule as
opposed to an outcome-oriented directive is avoided by limiting the task of a
constitutional court to simply rank conflicting policy actions with respect to the
degree actions satisfy criteria for rules.

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Abstract: This article analyzes the conflict of interests between shareholders and
other stakeholders, including when such conflicts of interests may arise. It is argued
that shareholder value cannot be justified simply by referring to any prerogative
property rights of the shareholders. Instead, shareholder value coincides with the
efficient hypothetical perfect contract. However, due to contractual failures in certain
bargain situations, management may be unable to "internalize the firms externalities".
This means that in these situations there is a tradeoff between a broad duty of loyalty
for management in listed firms and other traditional remedies. The theoretical insights
are applied on a case from the Danish Supreme Court (Louis Poulsen A/S) where the
interests of the stakeholders were decisive. However, it is shown that the verdict may
instead harm the relevant stakeholders illustrating how cautious the legal system
should use a doctrine based on the "company’s interests". In addition, the notion of a
firm’s social responsibility is critically evaluated together with the associated pitfalls
of accepting this concept.